Supreme Court Boosts Right to Resell Copyrighted Goods

The Supreme Court ruled that buyers of foreign copyrighted works may resell them in the United States without the copyright holder’s permission, a 6-3 decision Tuesday affirming the “first sale” doctrine of federal copyright law.

The decision (.pdf) by Justice Stephen Breyer was a major endorsement of the right of a purchaser of legitimate copyright-protected works to resell or use the work without the copyright holder’s permission. That’s why used bookstores, libraries, GameStop, video rental stores and even eBay were on thin ice pending Tuesday’s decision.

But how the doctrine applied to foreign-purchased works imported into the United States had been a matter of considerable debate, with a mixture of conflicting rulings in the lower federal courts.

… we ask whether the ‘first sale’ doctrine applies to protect a buyer or other lawful owner of a copy (of a copyrighted work) lawfully manufactured abroad. Can that buyer bring that copy into the United States (and sell it or give it away) without obtaining permission to do so from the copyright owner?Can, for example, someone who purchases, say at a used bookstore, a book printed abroad subsequently resell it without the copyright owner’s permission? In our view, the answers to these questions are, yes. We hold that the “first sale” doctrine applies to copies of a copyrighted work lawfully made abroad.

The decision was a blow to the Obama administration, which urged the justices to side with textbook maker John Wiley & Sons. The bookmaker sued California entrepreneur Supap Kirtsaeng, who was reselling textbooks on eBay purchased overseas to U.S.-based students without the publisher’s consent. The publisher sued, and a New York federal jury agreed with John Wiley & Sons’ position that the first sale doctrine did not apply, awarding $600,000 in damages for copyright infringement for the unauthorized sell of eight titles — $75,000 in damages each.

“The fact that these arguments made it to the Supreme Court is unsettling. We were almost in a situation where anyone that held a garage sale or loaned a book to a friend could be in violation of copyright law,” said Sherwin Siy, a vice president of lobbying group Public Knowledge. “We believe that this is evidence that a larger conversation about copyright reform is in order, to restore the balance of the law between the interests of authors, copyright holders and the public.”

It is the second time in three years the justices have weighed in on the hot-button topic. The Motion Picture Association of America and the Recording Industry Association of America have said a ruling in favor of Kirtsaeng would hinder their ability to control their global markets and territorial licensing methods.

The high court in 2010 said the first sale doctrine did not apply to overseas purchases of copyright-protected works that were imported for resale in the United States. The 4-4 ruling meant Costco could be liable for copyright infringement for selling foreign-made watches without the manufacturer’s authorization. However, because there was no majority decision, the ruling did not set a nationwide precedent and solely affirmed a lower court’s ruling.

Justice Elena Kagan was recused from the Costco case, as she had worked on it when she was solicitor general. She had urged the justices to side with Omega, the watchmaker. The government’s position, then and now, was that the “Copyright Act does not apply outside the United States.”

Costco and others have told the Supreme Court that the decision effectively urges U.S.-based manufacturers to flee the United States to acquire complete control over distribution of their goods in the American market, a position not lost on Tuesday’s majority.

“A geographical interpretation would prevent the resale of, say, a car, without the permission of the holder of each copyright on each piece of copyrighted automobile software,” Breyer wrote, adding: “We also doubt that Congress would have intended to create the practical copyright-related harms with which a geographical interpretation would threaten ordinary scholarly, artistic, commercial and consumer activities.”

“The ruling for Kirtsaeng will send a tremor through the publishing industries, harming both U.S. businesses and students around the world,” the group’s general counsel, Keith Kuperschmid said in a statement. “Today’s decision will create a strong disincentive for publishers to market different versions and sell copies at different prices in different regions. The practical result may very well be that consumers and students abroad will see dramatic price increases or entirely lose their access to valuable U.S. educational resources created specifically for them.”

In dissent, Justice Ruth Bader Ginsburg agreed:

“Because economic conditions and demand for particular goods vary across the globe, copyright owners have a financial incentive to charge different prices for copies of their works in different geographic regions,” she wrote. “Their ability to engage in such price discrimination, however, is undermined if arbitrageurs are permitted to import copies from low-price regions and sell them in high-price regions.”